UNIVERSITY INSTITUTE OF LEGAL STUDIES

PANJAB UNIVERSITY, CHANDIGARH

BUSINESS LAWS

PROJECT TOPIC: MODES OF DISSOLUTION OF FIRM

Submitted By: Submitted To:

Sandeep Singh Dr. Amita Verma

B.A.LLB. (Hons.)

7th Semester

Section-B

Roll No. 81/17

 ACKNOWLEDGMENT

I would like to express my special thanks of gratitude to DrAmita Verma

ma'am who gave the golden opportunity to do this wonderful project on the
Modes of dissolution of the firm , which helped me in doing lot of research
and I came to know about so many new things.I would like to thank UILS
Library who helped me in my research and provided me concerned book.I
would also like to thank my parents for motivating me and helping me.
Introduction
The Indian law of partnership in India is based on the provisions of the English law of partnership. Until the English
Partnership Act of 1890 was passed, the law of partnership even in England was largely based on legal decisions and
custom. There were very few acts of parliament relating directly to partnership. The Indian Partnership Act of 1932
(Partnership Act) was the result of a Report of a Special Committee.

Prior to the enactment of the Partnership Act, the law relating to partnership was contained in Chapter XI (sections 239
to 266) of the Indian Contract Act, 1872 (Contract Act). These provisions contained in the Contract Act were not found
adequate. As a result, Chapter XI of the Contract Act was repealed and replaced by the Partnership Act of 1932. The
Partnership Act is a comprehensive framework for contractual relationships amongst partners, and the basis for a most
popular form of organization for small businesses. It is interesting to note that the Partnership Act has not been subject to
any significant amendment since its enactment.

The Indian Partnership Act enacted in the Year 1932 defining the law relating to partnership the relation between the
persons who have agreed to share the profits of a business carried on by all or any of them acting for all -- makes it
obligatory to have a partnership registered with the Registrar of Firms, failing which the firm is prohibited from
enforcing any right in a Court of Law. This Act defines the relationship of partners

to one another and to third parties and lays down provisions as regards incoming and outgoing partners, dissolution of a
firm, etc. Under the Act partners are bound to carry on the business of the firm to the greatest common advantage, to be
just and faithful to each other and to render true accounts and full information of all things effecting the firm to any
partner or its legal representative. A partner is liable to indemnify the firm for any loss caused to it by his willful neglect
in the conduct of the business of the firm. A partner is the agent of the firm for the purpose of the business of the firm.
The act also provides for the sale of goodwill of the firm after its dissolution and the rights of the buyer and seller of the
goodwill.

The dissolution of partnership between all the partners of a firm is called the dissolution of the firm. [Section 39]. - -. As
per section 4, Partnership is the relation between persons who have agreed to share profits of business carried on by all
or any of them acting for all. Thus, if some partner is changed/added/ goes out, the ‘relation’ between them changes and
hence ‘partnership’ is dissolved, but the ‘firm’ continues. Hence, the change is termed as ‘reconstitution of firm’.
However, complete breakage between relations of all partners is termed as ‘dissolution of firm’. After such dissolution,
the firm no more exists. Thus, ‘Dissolution of partnership’ is different from ‘dissolution of firm’. ‘Dissolution of
partnership’ is only reconstruction of firm, while ‘dissolution of firm’ means the firm no more exists after dissolution.

MEANING OF DISSOLUTION OF A FIRM

A firm is not said to be dissolved by the fact of one or more members ceasing to be partners in it while others remain, but
only when all and every one of the members of the firm cease to carry on its business in partnership. The law with
respect to retiring partners as enacted in the Partnership Act is to a certain extent a compromise between the strict
doctrine of English Common Law which refuses to see anything in the firm name but a collective name for individuals
carrying on business in partnership and the mercantile usage which recognizes the firm as a distinct person or quasi
corporation1.

Matters pertaining not only to the fact of dissolution and fixing the date thereof but also matters arising out of the fact of
dissolution which pertain to the winding up of the partnership, settlement of accounts, taking over of the goodwill and
assets of the partnership, restrictions on the outgoing partners carrying on business in the case of transfer of goodwill to
one of them, are all matters dealt with under the subject ‘dissolution of a firm’.

A deed of dissolution must necessarily cover other matters, which arise directly out of dissolution, such as settlement of
accounts, payment of amounts found due on such settlement, closing down or continuation of business collection of
outstanding and payment of liabilities. Notwithstanding such clauses in a deed of dissolution, it would be liable to
payment of stamp duty under art 47, Sch I of the Bombay Stamps Act 1958 and would not be subject to separate duty on
such matters.2

If a new firm is formed by agreement between some of the former partners, it will nonetheless be new, however closely
that agreement may follow on the dissolution of the old firm. Whether a new firm is formed or not is a question of fact.3

1
CIT, West Bengal v. M/s AW Figgis & Co AIR 1953 SC 455
2
Santdas Moolchand Jhangiani & another v. Sheodayal Gurudasmal Massand (AIR 1971 Bom 237 (DB)).

3
MM Valliamai Achai & ors v. KNPLV Ramanathan Chettiar & ors AIR 1969 Mad 257.
MODES OF DISSOLUTION OF A PARTNERSHIP FIRM
A partnership firm can be dissolved by many modes like by agreement on the happening of certain contingencies, or
judicially. There are basically five modes of dissolution given under Sections 40 – 44 of the Indian Partnership Act.

• Dissolution by Agreement – Sec. 40

• Compulsory Dissolution – Sec 41

• Dissolution on the happening of certain contingencies – Sec.42

• Dissolution by notice of partnership at will – Sec.43

• Dissolution by the Court – Sec.44

Section 40: Dissolution by agreement.

A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.

(1) By Contract: A firm may be dissolved at any time at the consent of all the partners. This applies to all the cases
whether the firm is for a fixed period or at will. A Dissolution was held to have taken place in the case of a partnership at
will when the partners decided not to carry on the business of the firm from an agreed date.

(2) By Agreement: A firm may be dissolved in accordance with a contract between the partners. The contract
provided for dissolution may be contained in the partnership deed itself or in a separate agreement.

Both the above kinds of dissolution are provided in the same section, but they are different. Partners can consent to
dissolution regardless of what their previous agreements are. But in dissolution by contract they have to follow their
subsisting agreement, whether all the partners give their consent or not. In the case law, Harish Kumar vs. Bachan Lal4,
the parties entered into a partnership business at Barnala under the name M/s. Mehar Chand Bachan Lal and a regular
partnership deed was executed between them on 30-3-1954. In the case, it was held that refusal and neglect on the part of
any one partner to perform the duties undertaken by him would give to any other partner the right to apply for
dissolution or without legal proceedings the partnership could by agreement be dissolved.

4
AIR 1991 P H 130, (1991) 99 PLR 188
Section 41: Compulsory Dissolution.

A firm is dissolved: -

(a) By the adjudication of all the partners or of all the partners but one as insolvent,or

(b) By the happening of any event which makes it unlawful for the business of the firm
to be carried on or for the partners to carry it on in partnership: Provided that,
where more than one separate adventure or undertaking is carried on by the firm
the illegality of one or more shall not of itself cause the dissolution of the firm in
respect of its lawful adventures andundertakings.

Provided that, where more than one separate adventure or under-taking is carried on by the firm,
the illegality of one or more shall not of itself cause the dissolution of the firm in respect of its
lawful adventures and undertakings.

Compulsory Dissolution: The two events mentioned in the section, namely, the insolvency of
all, or all but one , partners, or illegality of business are known as grounds of compulsory
dissolution because they operate to bring about such necessary dissolution that there can be no
agreementtothecontrary.NoamountofclausesintheactcanpreventtheoperationofSection
41. The 2 clauses mentioned in the Section are as follows:-

(a) Insolvency: The sub-Section is based upon the obvious principle that that there must be
at least 2 persons to constitute a firm. As already seen, on adjudication as insolvent
partner ceases to be a partner as from the date on which he is adjudicated an insolvent 5.
Under Section 42(d), in the absence of a contract to the contrary the adjudication of a
single partner operates as a dissolution of a firm. The case contemplated, however by this
Section is where the whole firm adjudged insolvent, or all the partner but one are
adjudged insolvent. It is clear that under circumstances, the firm is dissolved, there being
no question of a contract to the contrary.

5
Section 34
Prohibition of Business:where a partnership carrying a business in British/Indian Territory is dissolved
by 1 partner becoming an alien enemy and the Indian profits made after the dissolution by the use of his
capital, payment being of course suspended during the war, an agreement may be void but not illegal.
An agreement by way of Wager is void but not illegal under Section 30 of the Contract Act. The
Supreme Court6 has held that a partnership formed for entering into wagering would not be illegal;
though it would be void. A firm, would not be illegal and its speculative business being void would not
be enforceable in the court of law. Where the business of a firm is illegal from the very beginning, the
agreement of partnership is itself unlawful under Section 23 of the Contract Act.

The proviso to the Section deals with cases in which the firm is carrying on not one
business, but more than one type of business. If in such a case, if one activity remains
lawful, the partnership escapes compulsory dissolution. In the case R. vs. Kupfer7
partnership was declared unlawful simply because of a war that broke into England and
Germany. It survives for the business which remains lawful, though it’s other business
operation being now unlawful, would have to be abandoned.

Section 42: Dissolution on the happening of certain contingencies.

Subject to contract between the partners a firm is dissolved,—

(a) If constituted for a fixed term, by the expiry of thatterm;

(b) If constituted to carry out one or more adventures or undertakings, by the

completionthereof;
(c) By the death of a partner;and

(d) By the adjudication of a partner as aninsolvent.

A firm is dissolved on the happening of any of the following contingences, provided above, that
there is no agreement to the contrary:

6
Gherulal Parakh vs. Mahadeo Das 1959 AIR 781, 1959 SCR Supl. (2) 406

7
(1915) 2 KB 321: (1915) 112 LT 1138
 (a) If the firm is constituted for a fixed period, by the expiry of that firm: Where a
partnership has entered into for a fixed term, the partnership is at the end of the term
dissolved by the expiry of that term, without any further act or notice, even when
there is a partnership for a fixed period, the death of a partner taking place during the
continuance of the partnership period dissolves the partnershipearlier 8.

(1) Expiry of a Term: where a firm is constituted for a fixed term, it becomes
dissolved on the expiry of that term, unless the dissolution is prevented by an
agreement between the partners. The Supreme Court held on the facts on the case
before it that, in the absence of an agreement to the contrary there was no question
of the survival of the firm after the expiry of the term of its term and the fact that
the partners, subsequent to the expiry of the term, consented to refer the disputes
to arbitration did not amount to an agreement to the contrary. 9

(2) Completion of Business: A partnership is dissolved by operation of law when the

business for which it was formed has been completed. The Section says that when
a firm is constituted to carry out one or more adventures or undertakings, it is
dissolved by the completion thereof. Where, in a case before the Patna High
Court, Ramnarayan vs. Kashinath, the firm was working a salt license and
control on salt being lifted, the firm became inoperative, the question arose
whether the firm had come into being only for working the licenses or to carry on
salt business whether, with or without control or license, Ramswamy, the decision
was, that the intention of the partners was that the partnership should continue so
long as the agency of salt continued or till separate agencies were obtained.

(b) If the firm is constituted to carry out one or more adventures or undertakings,
when they are completed: This sub-section refers to the dissolution of particular
partnerships10. Where a partnership was constituted only for the purpose of exploiting
a salt license, the partnership was dissolved on the salt control being lifted and on the

8
AIR 1927 Mad 491:(1927) 52 MLJ 318
9
Saligram Rupal Khanna vs. Knawar Rajnath, (1974) 2 SCC 642: AIR 1974 SC 1094
10
Section 8 (Definition of Particular Partnership)
 termination of the license 11. So where a partnership was constituted to carry out
contract with specified persons during particular seasons and as the said contracts
were closed, the partnership was dissolved. However, the death of a partner dissolves
earlier even a partnership for a particular adventure12. Completion of an adventure or
undertaking does not mean supply of or part or even substantial part of the agreed
goods. It is completed upon the realization of amount in respect of the said supply.

(c) By the death of a partner13:The effect of clause (c) of Section 42 is that in the
absence of a contract to the contrary, a partnership is dissolved by the death of a
partner. Death of a partner means dissolution of partnership. In a case before the
Rajasthan High Court14 it was contended against a firm that it should not be permitted
to sue as one of the partners died and the firm became dissolved; if the business was
continued, it should be registered anew and that not having been done it was not
competent to sue. The court allowed the action. It is often desirable, and in practice it
is not uncommon to provide by agreement that the death of a partner shall not
dissolve the contract between others.

As to the effect of Death, I.N. Modi J. said: “it is true that the Section 42(c) of the
Indian Partnership Act provides that a firm is dissolved by the death of a partner. It
must be however be remembered that this would be subject to contract between the
parties as the opening words of the Section show. Again, it is not necessary that a
contract between the partners in this connection need be express, but may be implied
and it may be possible to spell out such a contract from the subsequent conduct from
the of the surviving partners and the heirs of the deceased. Whether a firm, which
should have been dissolved by the death of one partner still continued to exist without
being dissolved would depend on the facts and circumstances of each case. The
business in this case was continued by the surviving partners along with the heirs of
the deceased partner. There was held to be automatic dissolution where one of the

11
Ramnarayan vs. Kashinath (1824), AIR 1954 Pat 53: (1953) 1 BLJR 289

12
Sayyed Abdul vs. Tumuluri, AIR 1927 Mad 491:(1927) 52 MLJ 318
13
CIT vs. Vinayaka Cinema, AIR 1978 AP51
14
Kesrimal vs. Dalichand, AIR 1959 Raj 140.
 two partners die. There was a clause in the partnership deed that the firm would be
continued for a certain number of years even after the death of one of the partners, the
court said that the clasue did not save the firm form dissolution because the legal
heirs of the deceased partner has expressed their unwillingness to the continuation of
the firm. The above facts were seen in the case of Jai Narayan Misra vs.
Hashmathunnisa Begum,200215.

(d) By the adjudication of a partner as an insolvent.: A partnership is dissolved at the

adjudication of a partner as an insolvent. Where a partner in a firm is adjudicated an
insolvent he ceases to be a partner on the date on which the order of adjudication is
made, whether or not the firm is hereby dissolved. Where under a contract between
the partners the firm is not dissolved by the adjudication of a partner as an insolvent,
the estate of a partner so adjudicated is not liable for any act of the firm and the firm
is not liable for any act of the insolvent, done after the date on which the order of
adjudication ismade.

This being subject to an agreement to contrary, the partners can agree that the
insolvency of a partner will not have any dissolving effect. Such an agreement will be
subject to the provision of the act relating to compulsory dissolution namely that on
the insolvency of all the partners or all but one, the firm would stand compulsorily
dissolved.

Section 43: Dissolution by notice of partnership at will.

(1) Where the partnership is at will, the firm may be dissolved by any partner
giving notice in writing to all the other partners of his intention to dissolve the
firm.
(2) The firm is dissolved as from the date mentioned in the notice as the date of

15
2002 (3) ALD 406, 2002 (3) ALT 689
 dissolution or, if no date is so mentioned, as from the date of the communication of
the notice.

Dissolution of partnership at will

Notice: - But in order to dissolve the firm the following conditions must be fulfilled:

A. Notice must be in writing;

B. Notice must express the intention of the partner to dissolve the firm;and
C. Written notice must be given to all the other partners.

Filing a suit in a court is not deemed to be a notice under Section 43(1). The Supreme Court in
Banarsi Das vs. Seth Kashiram held this. In this case the earlier suit filed at Lahore by one of
the partners for dissolution of partnership and accounts was dismissed for default, the parties
having migrated to India, consequent on the partition of the country. Later on, in another suit a
declaration was sought by one of other partners that the firm was dissolved on 13 May 1944
when the earlier suit was instituted. It was held that analogy of suits for partition of joint Hindu
family property with regard to which it is settled law that if all the parties are majors, the
institution of suit will result in the severance of the joint status of the family was inapplicable
under Section 43(1) because the rights of the partners of a firm to the property of the firm are of
a different character from those of members of a joint Hindu family. No particular formality is
required but the notice must be an unambiguous intimation of a final intention to dissolve a
partnership17. The notice must be explicit, precise and final. A mere proposal to dissolve a
partnership depending upon the result of an enquiry to be made and information to be gathered
would not amount o an unconditional expression of an intention to dissolve under this section. A
resolution passed at the meeting of the partners would be a result of the deliberations; this may
come under Section 40 but not under this Section as it is not a notice in writing by a partner to
all other partners as required by this section. The service of writ and plaint in a suit for
dissolution upon all defendants maybe a sufficient notice of an intention to dissolve. The notice
should be served on all the other partners. The notice once given cannot be withdrawn unless all
the other partners consent. The fact that one of the partner receiving the notice is of unsound
 mind does not affect the validity of the notice. In a partnership at will it is open to a partner even
if there is no dispute between them to dissolve the firm. The Supreme Court observed that under
Section 43(2), notice must contain the date from which the firm will be dissolved. The question
of writing the date of dissolution in a plaint does not arise. Thus plaint cannot be deemed to be as
a notice under Section 43(2). In Devi Textiles vs. S. Suganthi16 there was a partnership at will
and both the partners (plaintiff and defendant) had 50% shares in the firm and both agreed to
have the firm dissolved and thereafter partners did not have good relationship, but the defendant
continued the business of the firm as if nothing happened and it is still inexistence.
Decision: In such circumstances, it was held that the appointment of a receiver would be proper
for rendition of accounts and for completing winding up process.

Section 44: Dissolution by the Court.

At the suit of a partner, the Court may dissolve a firm on any of the following grounds,
namely:—

(a) that a partner has become of unsound mind, in which case the suit may be brought
as well by the next friend of the partner who has become of unsound mind as by
any otherpartner;

(b) that a partner, other than the partner suing, has become in any way permanently
incapable of performing his duties aspartner;

(c) that a partner, other than the partner suing, is guilty of conduct which is likely to
affect prejudicially the carrying on of the business, regard being had to the nature
of thebusiness;

16
AIR 2000 Mad. 62, at p. 65.
 (d) that a partner, other than the partner suing, willfully or persistently commits
breach of agreements relating to the management of the affairs of the firm or the
conduct of its business, or otherwise so conducts himself in matters relating to the
business that it is not reasonably practicable for the other partners to carry on the
business in partnership withhim;

(e) that a partner, other than the partner suing, has in any way transferred the whole
of his interest in the firm to a third party, or has allowed his share to be charged
under the provisions of rule 49 of Order XXI of the First Schedule to the Code of
Civil Procedure, 1908 (5 of 1908) or has allowed it to be sold in the recovery of
arrears of land revenue or of any dues recoverable as arrears of land revenue due
by thepartner;

(f) That the business of the firm cannot be carried on save at a loss;or

(g) On any other ground which renders it just and equitable that the firm should be
dissolved.

This declaration of the grounds for judicial dissolution corresponds, with verbal variation and
additional provision adapted to Indian procedure, to Section 35 of the English Act, which was
itself a somewhat enlarged version of Section 254 of the Contract Act. The Section confers a
right to pray for dissolution on any of the grounds specified therein notwithstanding any term of
the partnership deed.

At the suit of a partner, the Court may dissolve the firm on the above mentioned grounds.

(a) Insanity- Insanity does not dissolve the partnership ipso facto confirmed lunacy provides a
ground for dissolution by the court if other partners apply to court for dissolution20. It is now
clear that in the case of insanity, a next friend on behalf of the lunatic may sue for
dissolution. The judge exercising jurisdiction in lunacy is also empowered to dissolve a
partnership in the case of a partner becoming a lunatic(as per Section 52 of Indian Lunacy
Act, 1912). It is not necessary that the partner of unsound mind should be found a lunatic by
 inquisition. The same was found in the case of Jones vs. Lloyd, where dissolution was
necessary to protect the interest of insane and the otherpartners 17.

On the application of any of the partner, court may order for the dissolution of the firm if a
partner has become of an unsound mind. Lunacy of a partner does not itself dissolve the
partnership but it will be a ground for dissolution at the instance of other partners. It is not
necessary that the lunacy should be permanent. In the case of a dormant partner the court
may not order dissolution even on the ground of permanent insanity, except in special
circumstances.

(b) Permanent Incapacity- whether any partner has become permanently incapable of
performing his duties as a partner; any partner can apply for dissolution. The incapacity may
be due to illness, mental or physical in nature but it must be permanent. If the incapacity is
temporary or is such that does not affect the duties of a partner, the firm cannot be dissolved
on this ground. For example there is fracture of the bone of leg or hand and there is every
likely hood of it being rectified or where a partner suffers from paralysis or he is improving
speedily by treatment, the firm cannot be dissolved on this ground. If a partner has become
permanent in capable of discharging his duties and obligations then court may order for the
dissolution of firm on the application of any of the partner. where a partner is imprisoned for
a long period of time the court may dissolve the partnership was held in case of Whitwell vs.
Arthur. In the case law, Whitwell vs. Arthur18, a partner suffered from an attack of paralysis
and that would have been a good ground for dissolution for the fact that the medical evidence
showed that the attack was only temporary and he was alreadyimproving.

Partner guilty of conduct likely to affect prejudicially the carrying on of the business. -
At the suit of a partner, the court may dissolve a firm on the ground that a partner, other than
the partner suing, Is guilty of conduct, which is likely to affect prejudicially the carrying on
of the business regard being had to the nature of the business23. If any partner other than
partner suing is responsible for any loss to the firm, which amounts to misconduct and
prejudicially affects the carrying on of business then the court may order for the dissolution
17
Rowland vs.Evans,1824 43 Ch 826.
18
Whitwell vs. Arthur 1865 beva 140.
 of the firm. If any partner other than partner suing is responsible for any loss to the firm,
which amounts to misconduct and prejudicially affects the carrying on of business then the
court may order for the dissolution of the firm.

TWO ASPECTS OF Section 44(C):

The first thing to be noted in Section 44(c) is that if the partner filing the suit himself is
guilty of conduct which is likely to affect prejudicially the carrying on of the business,
the court will not order the dissolution of thefirm.

As remarked in Harrison vs. Tenant19, “No party is entitled to act improperly and then
to say that the conduct f the partners and their feelings towards each other are such that
the partnership can no longer be continued and certainly this court would not allow any
person so as to act and thus to take advantage of his own wrong.

The second important thing to be noted in Section 44 (c) is that in order to dissolve the
firm on this ground, it is necessary that the partner must be guilty of a conduct which
keeping in view the nature of the business is likely to affect prejudicially the carrying on
of the business. If the partner is guilty of wrongful act willfully, the mere fact that his
continuance in the partnership firm will be detrimental for the firm will not be sufficient
to dissolve the firm.

It may also be noted that much depends on the nature of the business. In Snow vs.
Milford20, a partnership firm carried on the business of the bankers. A partner of the firm
named Milford was guilty of living in adultery with several women and as a result of this
his wife had deserted him. Other partners filed as suit for dissolution of the firm on the
ground of the said bad conduct of Milford.

19
[1856] ALL ER 945.

20
(1868) 18 LT 142.
 Reasoning & Decision: The court dismissed the suit holding that it cannot be said that a
customer’s money is not safe because one of the partners of the firm is guilty of adultery.
Though the court condemns the act of adultery of a person but this cannot be a ground for
the dissolution or expelling the partner. Undoubtedly in some cases the moral conduct of
a person may prejudicially affect the business of a firm. For example, if a doctor enters
into a partnership with another doctor to run the clinic and it is found the is immoral
towards some patients, partnership firm may be dissolved on this ground. But this is not
so in the case of business of bankers because in tit he moral conduct of a partner is not
likely to affect prejudicially the business of the firm.

But if the moral conduct of a partner is likely to affect prejudicially the business of the
firm even though the crime is less serious, keeping in view the business of the firm the
court may dissolve the firm. For example, if a partner in a firm of drapers is found
without ticket and is convicted, the firm may be dissolved. Similarly, if the conduct of a
partner is such that partners may lose faith in each other the firm may be dissolved.
Similarly, if the conduct of a partner is such that partners may lose faith in each other the
firm may be dissolved.

(c) Persistent Breach of Agreement – Under Section 44(d) it is necessary that there is willful
or persistent breach of agreements relating to the business of the firm or the conduct of the
partner is such that it is not reasonably practicable for other partners to carry on business with
him. If the breach of agreement is not willful, a single breach shall not be sufficient to
dissolve a firm. Constant or continuous behavior of enmity between the partners making the
cooperation between them impossible, persistent refusal by one partner to perform his duties,
one partner habitually accusing the other partner of gross misconduct in the business, and to
maintain wrong accounts and not to enter the receipts, are the 4examplaees of some of the
grounds on which the firm may be dissolved under this section. In the end it may be noted
that the firm may be dissolved by the court on the suit of a partner other than the one who is
guilty. When a partner, other than suing persistently commits breach of agreement relating to
the management of the firm or otherwise so conducts himself in matters relating to business
that it is not reasonably practicable for the other partners to carry on the business in
 partnership with him, the court may order dissolution. Any conduct that is destructive of
mutual confidence gives rise to the ground of dissolution of the firm. “ Keeping erroneous
accounts and not entering receipts, refusal to meet on matters of business, continued
quarrelling, and such a state of animosity as precludes all reasonable hope of reconciliation
and friendly co-operation, have been held sufficient to justify a dissolution.” A father’s
treatment of his partner’s son (opening his private letters, and like some parents, failing to
realize that his son is now a grown up.) has been held to justifydissolution 21.”

The court may order for the dissolution of the firm if the partner other than the suing partner
is found guilty for constant breach of agreement regarding the conduct of business or the

management of the affairs of the firm and it becomes impossible to continue the business
with such partner.

(d) Transfer of Interest – When a partner has transferred the whole of his interest in the firm, to
a third party or has allowed his interest to be charged, or has allowed it to be sold in, the
recovery of arrears of land revenue, or any of the dues recoverable for land revenue, the court
may order dissolution. When any of the partner other than the suing partner transfers whole
of its share to the third party for permanently. If a partner transfers whole of his interest to a
third party he will have no interest left in the firm and therefore, any other partner can get the
firm dissolved by filing a suit in court on this ground. Such a third party or transferee does
not thereby become a partner in the firm. It does not entitle the transferee, during the
continuance of the firm to interfere in the conduct of the business, or to require account or to
inspect the books of the firm, but entitles the transferee only to receive share of profits of the
transferring partner and the transferee shall accept the account of profits agreed to by the
partners. If the firm is dissolved or if the transferring partner ceases to be a partner, the
transferee is entitled, as against the remaining partners, to receive the share of the assets of
the fir to which the transferring partner is entitled, and for the purpose of ascertaining the
share, to an account as from the date of the dissolution.

21
Charles D. Drake, Law of Partnership (1912)
 (e) Perpetual Losses – When the business of the firm cannot be carried on save at a loss, the
court may dissolve it. The whole object of the Partnership is to make profits and if that object
cannot be attained, it is needless for the firm to continue. Thus where whole of the capital
contributed by the partners had already been spent and there were no business prospects
unless they contributed further capital which they refused to do, the court granted
dissolution22. According to the definition of the partnership as given in Section 4, the chief
objective of partnership is to acquire profit. If the circumstances are such that this chief
objective cannot be attained and the business of the firm cannot be carried on the court on
this ground may dissolve save at loss, firm. Every partnership firm is established to attain a
particular objective and if the circumstances are such that it is not possible to attain that
objective, the remedy in such cases is to dissolve the firm. For example, in a case partnership
firm was established for the exploitation of mica from mines, one of the partners filed a suit
for the dissolution of the firm on the ground that the firm is suffering loss continuously.
Other partners opposed the suit on the ground that the partnership was for a fixed period and
that the plaintiff had no valid reasons to resolve the firm before the expiry of the period. The
court held that Section 44(f) will apply in this case and that the plaintiff is entitled to sue for
dissolution and accounts. The court may order for dissolution if the firm is continuously
suffering losses and there is no more capital available for the future growth of the firm.

(f) Just & Equitable – Dissolution may be ordered when on any other ground the court thinks it
just & equitable that the firm should be dissolved. The expression, “just and equitable” gives
the court a very wide discretionary power, which is not fettered by any rules, to order
dissolution whenever in the circumstances it seems desirable. Where the terms of a
partnership deed provided to a partner, the facility from withdrawing from a firm by
transferring his trust to others, the court said that this would keep the right to seek dissolution
in abeyance unless a crisis is created by others by refusing to pay him out. The court equally
concerns itself with the interests of the other partners. Where the managing partner supplied
to the firm from his personal business certain material for which he overcharged, this would
held to be a breach of faith entitling other partners to demand dissolution. It is not necessary
that a notice as per Section 43 should be given. The court has to take into account all the
facts and circumstances and moulds the relief according to the exigencies of the case. Where

22
Jeening vs. Baddeley, 1856 3 K&J 78
the dissolution was prayed for, the court provided relief of retirement. Section 44(g) gives
very wide powers to the court.

Whenever a case is brought to the case under Section 44(g), the court has to decide whether
it would be ‘just and equitable’, to dissolve the firm and such matters cannot be left for
decision or award of the arbitration . Under Section 44(f), 6the court has to decide according
to its discretion but this discretion cannot be restricted by rigid or inflexible rules. The court
has to use its discretion on the basis of facts and circumstances of the case. For example, in
one case 4 out of 9 partners wanted dissolution of the firm and their shares in the firm was
7/9. There was no cooperation and mutual faith between the partners. There were many and
long-persisting disputes among them. The court held that it would be just and equitable to
dissolve the firm.

The court may order for dissolution on any other ground which court think is just, fair and
equitable. E.g. loss of total confidence between the partners was held in case of Havidatt
Singh vs. Mukhe Singh.

Whether Right to Apply for Dissolution can be Excluded

The right of a partner to ask for dissolution on any of the above grounds cannot be excluded
by nay agreement to the contrary. Where the no other mode of dissolution is available,
Section 44 being the lender of last resort, its operation cannot be allowed to be nullified. The
Allahabad High Court has, however, held differently. In a case before it the partnership deed
provided that a partner could withdraw it by selling his interests to his co-partners or, in the
event of their failure to buy it, by selling it to the others and dissolving the firm. The other
partner failed to buy and, therefore, dissolution was prayed for, but was not granted, the court
saying that the provision had taken away a partner’s right to cause dissolution. This view is,
however, now no longer tenable. Following a Privy Council Decision38, the J&K High Court
stated that “It can be safely said that Section 44 confers an absolute and independent right
and it is not open to the partner’s to take away that right by means of an agreement between
them.
CONCLUSION

The firm is dissolved when all the partners of a firm is called the “dissolution of the firm”. Thus we can
conclude that the firm is dissolved when all the partners stop carrying on the partnership business. If some
partners dissociate from the firm and the remaining partners continue the business of the firm, the firm is not
dissolved. The dissolution of a firm is distinct from the retirement of a partner because in latter situation
others or remaining partners continue the business of the firm and the firm is not dissolved. Thus dissolution
of partnership between all the partners of a firm is called dissolution of the firm.
The dissolution of the partnership brings about a change in the relations between partners but partnership
between them does not completely end. The partnership continues for the purpose of realization of assets or
properties of the firm.

Further, after the dissolution of a firm the authority of each partner to bind the firm, and the other mutual
rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to
wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the
dissolution, but not otherwise.
REFERENCES

 Singh, Avtar, Introduction of Law of Partnership (Eastern Book Company, 10 th edn.,

2011).
 Mulla, The Sale of Goods Act & The Indian Partnership Act (10 th edn., 2012).